Ian Cowie was named Consumer Affairs Journalist of the Year in the
London Press Club Awards 2012. He has been head of personal finance at
Telegraph Media Group since 2008, having been personal finance editor
since 1989. He joined the paper in 1986. He is @iancowie on Twitter.

Why pensioners are hit hardest by rural poverty

Nearly 10m people living in the English countryside need about a fifth more income than city dwellers to maintain a decent standard of living because of higher heating and transport costs. But rural incomes tend to be lower than those in town and so one in five people in the countryside lives in poverty.

Public awareness of these complex problems is rising as more people understand how apparently technical changes to inflation-proofing for pensions will reduce many older people’s already low spending power by hundreds of pounds a year. When the changes were announced earlier this year in the Emergency Budget, I asked: “What’s the difference between the ‘right’ and ‘wrong’ kind of inflation? The answer could add up to £800 less annual income for public sector pensioners living on half national average earnings and substantial cuts for millions of people on the basic state pension and company pensions.

For the first time in 30 years, from next April pay rises will be taken into account when the basic state pension is uprated in line with inflation. At present, indexation of pensions is calculated in line with the annual rate of increase in the retail prices index (RPI) in September or 2.5pc; whichever is greater.

Next April will be the last time RPI is used to measure price inflation for the indexation of pensions, benefits and tax credits. After that, the consumer price index (CPI) will be used.

CPI does not include housing costs in the way that RPI does and this has tended to produce lower measurements of inflation for many years. Actuarial consultants Towers Watson estimate that, based on the Budget inflation forecasts, by 2016, a pensioner currently receiving £10,000 a year will be more than £800 a year worse off as a result of the change. This is because their pension will have increased to around £11,400 whereas it would have grown to more than £12,200 under the old rules.

Geoff Everett, private client tax director at accoutants Smith & Williamson calculated outcomes for two pensioners – one linked to RPI, the other to CPI – over more than the last decade. He said: “The person with the RPI linked pension has been better off in every year since 1996.”

Here and now, the CRC report suggests that people living in rural Britain will be hit hardest of all. Based on research by the team from Loughborough University that calculates the Joseph Rowntree Foundation's minimum income index, what it all boils down to is that where you cannot rely on mains gas and must use other more expensive fuels to heat your home – and where public transport is scarce and running a car is a necessity – living costs are higher.

Nicola Lloyd, a director of the CRC, said: "Although it is now widely recognised that one in five rural households experience poverty, this is the first time we've also had reliable data to show the minimum cost of living in the countryside is higher than in the city.”

The CRC calculates that about 700,000 rural households live below the poverty line. On an individual level, it reckons that someone in a remote village needs £18,600 a year to maintain a decent standard of living, compared with £14,400 for someone living in town. Sadly, many pensioners fall far short of either target – and changes to inflation proofing proposed by the coalition Government mean more will do so in future.